Determine the selling prices of products Alpha

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Reference no: EM132767571

Question - Case study on GRT Ltd. GRT Ltd wants to determine long term selling prices for their products Alpha and Beta which they are newly introducing in the market. Both these products will be manufactured in department D which is considered as a profit centre. The estimated data are as follows:

Particulars Alpha Beta

Annual production (units) 100,000 200,000

Direct materials cost per unit $15 $14

Direct labour cost per unit (Direct labour hour rate: $18) $9 $6

The proportion of overheads other than interest, chargeable to the two products are as follows:

Factory overheads (50% fixed): 100% of direct wages

Administration overheads (100% fixed): 10% of factory cost

Selling and distribution overheads (50% variable): $4 and $4 respectively per unit of products Alpha and Beta.

The fixed capital investment in the department is $5,000,000. The working capital requirement is $5,225,000. The department is expected to give a return of 20% on its capital employed.

Required -

(a) Determine the selling prices of products Alpha and Beta such that the contribution per direct labour hour is the same for both the products.

(b) Prepare an income statement showing in detail the required sales, variable costs, required contribution, fixed costs, and over-all profit required for department D in order to achieve its target target rate of return of 20% on its capital employed.

(c) Determine the full cost per unit (including production, selling, and admin costs) and mark up as a % of full cost per unit.

Reference no: EM132767571

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